Can Spending $10,000 on a New Couch Make Perfect Sense?

Would you pay $10,000 for a sofa? Even if you decide to buy the most expensive couch you can find, these financial pros say it could be ok. We’ll review two scenarios where the answer is (unsurprisingly) “No,” and one where it’s “Yes!”

I was scrolling through the Money topic of Medium, a popular online publication, when I ran across this piece by Matthew Boutte, “Why spending passive income is radically different than spending earned income.” Wait… what?! What’s that subtitle? “Or, why I might consider spending $10,000 on a couch”

Really?! Spending $10,000 on a couch?!

Hmmm… This better be good!

Boutte’s Interesting Idea About Buying an Expensive Couch

In that piece, Boutte proposes a different way of looking at your spending based on your income type.

He paraphrases the Financial Independence movement’s tenet that money represents your “life force” since you spend time bringing in that money.

For example, if your hourly income is $50, buying a $10,000 sofa means you’d be “spending” 200 hours on it. That’s 25 full-time days or five full-time weeks of work!

If your hourly income is $25, that increases to 400 hours, 50 days, or 10 full-time weeks!

Worse, you can’t simply divide your income by your annual work hours. You should also consider:

• Time spent getting ready for work
• Time spent getting to and from work
• Time spent after-hours responding to work calls, emails, text messages, etc.
• Work-related expenses (e.g., office-wear, dry cleaning, commuting, etc.).
• Taxes!

If you calculate all these, your hourly income may be less than half of what you’d naively think, and the hours of “life force” you spend are twice as many!

However, Boutte says, “…passive income… comes regardless of whether you’re awake or asleep, at your desk or on a beach in Thailand. So it isn’t really trading your life force… if I splurge and spend a month’s worth of passive income on a $10,000 couch, it’s not that big of a deal — next month will bring its own passive income. But if I trade $10,000 of earned income for the couch, that’s 400 hours of my life that I’m never getting back…”

Does Having Passive Income Really Mean Money Isn’t Time?

Boutte’s idea is interesting, but…

Money is fungible, so having some passive income doesn’t automatically make big splurges workable.

Here are a couple of scenarios where Boutte’s conceptual framework breaks down, and one where it survives.

Scenario 1: Your income includes passive and earned income

Say your annual expenses are $50,000, your (after-tax) earned income is $30,000, and your (after-tax) passive income is $25,000.

In your baseline situation, you have $5000 excess annual income that you can invest to increase your portfolio (and thus your future passive income).

Then, you see a $10,000 couch that you love. Following Boutte’s notion, you buy it out of your passive income, thinking this avoids spending your “life force” on it.

Oops!

Your $5000 excess income just turned into a $5000 income deficit!

How do you close the gap?

If you were able to easily scale up the passive income, you’d have already done so. This leaves working for the missing money, so buying that couch does spend down your “life-force.”

Fail.

Scenario 2: Your income is all passive but in balance with your spending

Again, assume your annual expenses are $50,000. This time, however, let’s assume your annual (after-tax) passive income is also $50,000.

Could you spend $10,000 on a couch without “life-force” concerns?

Hardly.

Spend $10,000 on the couch, and you again leave a $10,000 “hole” in your budget.

Here too, we can safely assume you’d have already scaled up your passive income if you could, so to close the budget hole you’d need to work enough to generate the missing income.

Another fail.

Scenario 3: Your income is all passive and far exceeds your ongoing spending

This time, assume your annual expenses are the same, $50,000, but your passive (after-tax) income is $75,000 a year.

You decide to splurge on a $10,000 couch, increasing your annual spending to $60,000 for just this year. Since you have a $25,000 annual excess of passive income, there’s no need to work to cover the $10,000 purchase.

Finally! Boutte’s idea works!

What the Financial Pros Say, Expensive Couch, or Otherwise

I asked financial pros if they advise their clients similarly.

Here’s what they said.

Tim Dyer, Wealth Manager at Dyer Wealth Management, kicked things off by saying, “I worked with a friend who had just returned from military deployment in Afghanistan. He was single and a high-ranking officer, and had saved almost all the money he earned while away for two years. He even rented out his posh apartment in an expensive city, pocketing that income as well.

“When he returned, he asked if it was ok to buy a new Maserati. I asked him why he thought he couldn’t, as he had plenty of discretionary funds. He thought it wasn’t smart to spend so much on a luxury item like a sports car.

“I reminded him of the sacrifices he made for his future self (not to mention his country). It was time for him to enjoy things, as he had been smart with this money. That was the point of having it.

“A few years later, he called me and thanked me for ‘giving him permission’ to spend some money guilt-free.

“I thanked him for his service!”

Jonathan Bird, CFP®, CWS®, wealth advisor at Farnam Financial, also recalled telling a client to splurge, “I told him, ‘Instead of serving your portfolio, let your portfolio serve you.’

“Most retirees consistently saved for well over 30 years, and it’s a major psychological shift to think about spending all available income. Give yourself permission to spend! Work with your financial planner to understand how much you can safely spend, and then go spend it!”

Ryan Graves, CFA, President of Bemiston Asset Management, wrapped things up by saying, “It’s crucial to celebrate financial wins and success. It’s ok to spend money you have and don’t need. That’s why sometimes I suggest buying an expensive couch, car, or vacation.

“For example, clients I’ve worked with for a while had zero debt, lived within their means, and were well on their way to meeting their financial goals. Then in 2021, this client got a new job with more than double the pay plus significant bonuses.

“After receiving such a life-changing windfall in income, buying an expensive couch and taking an extended European vacation allowed them to enjoy their success now without hampering or straining their long-term goals.

“When a bonus makes up for a significant portion of total compensation (think 50%-ish or more), it feels like more of a windfall than an extra paycheck. People often mentally account for monthly income and expenses, so receiving a significant annual bonus feels like a lottery more than an extra paycheck.

“Living within your means based on salary and enjoying bonuses can be a great way to balance enjoying now while saving for the future.”

Should You Buy That Expensive Couch?

Having some passive income is certainly better than having none, and clearly, the more passive income you have relative to your spending level, the better.

However, unless your passive income exceeds your expenses by a good margin, or you can scale it up as needed (in which case, why haven’t you?), don’t count on it as a way to avoid the “life-force” (or work-time) impact of a big splurge… like buying a $10,000 couch.

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This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.